Micro-Mechanics (Holdings) (SGX:5DD) Is Paying Out A Larger Dividend Than Last Year

Micro-Mechanics (Holdings) Ltd. (SGX:5DD) has announced that it will be increasing its dividend on the 19th of November to S$0.08. This will take the annual payment from 4.4% to 4.4% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Micro-Mechanics (Holdings)

Micro-Mechanics (Holdings) Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Micro-Mechanics (Holdings)'s dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 103% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

The next 12 months is set to see EPS grow by 25.5%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 102% over the next year.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was S$0.04 in 2011, and the most recent fiscal year payment was S$0.14. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Micro-Mechanics (Holdings) has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

We Could See Micro-Mechanics (Holdings)'s Dividend Growing

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Micro-Mechanics (Holdings) has seen EPS rising for the last five years, at 8.7% per annum. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Micro-Mechanics (Holdings)'s Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Micro-Mechanics (Holdings) that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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